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As Prepared and Presented By
Paul Fazio CEO
Sonny’s The Carwash Factory
October 2015
Industry Overview ◦ Five year outlook
Client Types ◦ Historic/ Current / Future
Industry Overview ◦ Consumers
◦ Industry
Car wash and auto detailing industry revenue growth is forecasted at an average annual rate of 3.3 percent to 2018*
Contributing factors include: ◦ The growth is largely tied to the industry’s
reliance on consumer discretionary spending which they believe will increase in the next 5 years.
◦ New and used car sales are positive indicators for the next 5 years
◦ Environmental awareness will drive consumers to professional car washing
*Source: IBISWorld October - 2012
Automated car washing offers the speed and convenience increasingly demanded by US consumers*
◦ US consumers consider products and services that save time to be important
◦ The proportion of US consumers washing their car at home is in decline
Increases in car wash use** -- over 19.2% more consumers used a professional car wash in 2014 than in 1996
*Datamonitor **International Carwash Association (ICA) Study of Consumer Car Washing Attitudes and Habits - 2014
What is driving the growth in the
washing market on the consumer side?
ICA research data shows a decline in home washing as “Most Often” choice in the past 18 years
Trend continues to move from “Do-it-Yourself” to “Do-it-for-Me”
Home washing as an overall percentage: ◦ 1996: 47.6%
◦ 1999: 44.5%
◦ 2002: 43.0%
◦ 2005: 38.0%
◦ 2008: 34.4%
◦ 2011: 31%
◦ 2014: 28.4%
They are Leaving the Driveway!
Source: ICA Study
Where do they wash MOST OFTEN? (2008 vs 2014) 34% / 28% At home 14% / 20% Exterior 20% / 20% Full Serve 18% / 16% In-Bay 14% / 12% Self Serve / 5% Hand* ◦ (2014 = 101% - rounding)
Source: ICA 2008 / 2014 Studies
The Industry is growing since more Americans are washing their cars at a professional wash than ever before
Where are they washing? ◦ Of those that wash at a professional carwash only:
◦ 58% Conveyor Most Often
Source: ICA 2014 Study
Which ONE of the following do you use most often? (2014)
Type Pro Only Pro most often
Full Serve 30% 27%
Exterior 28% 27%
In-Bay 22% 22%
Self 13% 17%
Hand 7% 7%
Source: ICA Consumer study 2014
72% of those that wash their car most often at a professional wash, do so every couple of months or less!!!!!
Car wash Usage Frequency Pro most often
Only once a year 5%
Every six months or so 20%
Every couple of months 47%
A few times a month 24%
Once a week or more 4%
Source: ICA Consumer study 2014
28% are Heavy Users – minimum of a few times a month – 66% of total washes
47% are Medium Users – every couple of months – 29% of total washes
25% are Light Users – every 6 months or less – 5% of total washes
Source: ICA 2014 Study
To protect their investment they are more apt to wash their car
Average car age in the US is 11.4 years old
Source: ICA 2014 Study
Years old Pro Most Often
< 1 8%
1 - 3 22%
4 - 5 16%
6 - 9 24%
10+ 29%
Why don’t they wash more often (580)?
◦ Too expensive - 36%
◦ It isn’t necessary - 22%
◦ Too time consuming - 20%
◦ I’d rather do it myself - 7%
◦ Weather does the job for free - 6%
◦ I’m too lazy - 2%
◦ I don’t like the service at car washes - 2%
◦ It’s inconvenient - 2%
◦ Location, there aren’t any washes close by - 2%
Source: ICA 2011 Study
Why they don’t: ◦ Number one reason for washing at home instead of
at a professional wash – Cost
Why they do: ◦ Number one motivation for using a professional
carwash – it makes the consumer feel good!
The emotional rewards outweigh the attributes in terms of motivation
Source: ICA 2014 Study
By Gender for those that use professional washes only:
Female – 55%
Male – 45%
Source: ICA 2014 Study
For Pro most often by wash type – What percent is Female?
Female Full
Serve Ext. In-Bay Self
Serve
2014 51% 58% 54% 45%
2008 44.6% 57.5% 56% 48.5%
Source: ICA Consumer study 2008/2014
ICA 2011 Market Study
80,500 Locations
24,000 Conveyors (26,400 tunnels)
25,500 Self Serve (89,250 Bays)
29,000 In-Bay (37,700 Machines)
2,000 Other (Truck Washes etc.)
Ownership Type
45,000 Owner/Investor
30,000 C-store and gas
5,500 Hypermarket
Source: ICA 2011 Study
Year Total Sales In MM
US Sales In MM
Outside US In MM
2005* $118
2007** $135 $103 $32
2010*** $84 $79 $5
2011*** $92 $66 $26
2012**** $99 $78 $21
2013**** $115 $97 $18
2014**** $137 $124 $13
Source: * Booz Allen 2006, **Datamonitor 2008, ***ICA , **** Sonny’s
What types of conveyor car washes are being built in the industry now? Internal sales data revealed the following:
2009 2010 2011 2012 2013 2014
Express 75% 77% 80% 81% 84% 82%
Flex 20% 17% 15% 10% 11% 12%
Full 5% 6% 5% 9% 5% 6%
Source: Sonny’s Sales Statistics
Express Exterior segment is easily outpacing other conveyor segments:
◦ Express Exterior is creating growth in tunnel systems. 82% of all new tunnels we built in 2014 were Express Exterior
◦ Investors that have always been drawn to the industry see they can enter the business without the labor headaches and management problems of the Full Serve model and still get a good ROI on this real estate based investment
◦ In-Bay created additional customer base for Express Exterior washing
In-Bay and Self Serve investors are looking at the Express market
21
Express Exterior market will continue to grow and dominate the landscape
Will continue to pull more washers out of the driveway and make existing car wash customers wash their vehicles more often
Smaller units will reach into small markets
Express washes (and Express lanes at Full Serves) will fight for market share with In-Bay and Self Serves
22
More on-line offerings and auto greeter advancements will be developed to help up-sell and produce a higher average ticket
May migrate to Flex to gain more market share and for differentiation as markets saturate
Equipment maintenance will become more important based on volumes and replacement cost
Further recognition that Express concept is not a guarantee of success
Flex Service (combination of Express and off-line aftercare) is replacing Full Service: ◦ Flex accounted for 12% of new locations we built
last year
◦ In areas with good income levels to capture more market share of the washing public
◦ Less labor / easier to manage than Full Serve
◦ Off-line offerings are typically priced higher than at Full Serves
◦ Pricing is used to throttle up or down the percentage of washing customers
Usually looking for 25% – 30% of cars washed
24
Flex Serve will be used in express saturated areas for differentiation
Percentage of Flex washes being built will increase with time, taking away from both Express and Full Serve
More equipment products will be developed to add to the appearance and the efficiency of these aftercare areas
Only 6% of new locations we built in 2014 were Full Service washes
Full Serve locations today struggle with labor issues, and time of service
Where space allows, full serve operators are adding exterior lanes in response to express exteriors ◦ Increase volume/customer base ◦ Reduce labor cost
More equipment is being added to eliminate as much labor as possible – starting with “ultimate package”
Full Serve locations that remain will do well ◦ Demo shift to: Do it for me
◦ Competition will shrink
Need to be well run with focus on the customer experience and providing value: ◦ Consistency of product
◦ Time of service (15 minutes or less)
◦ Professional appearance (personnel & facility)
◦ Professional presentation of services
◦ Menu offerings to differentiate them from the Express providers
27
Secondary/smaller markets will be an area of growth for conveyor segment
More automation – start with “ultimate package”
Equipment will be more environmentally friendly
Regional branded locations will continue to grow and be the most successful – Leverage the Brand
28
5 Year Outlook: Positive ◦ Growth on the Retail side
Consumer studies support positive growth
Market place supports those studies
Growth in the Conveyor market ◦ Around 20% for OEM’s in 2015 ◦ High single digit through 2019
Year Total Tunnel Sales In MM
Total In-bay Sales In MM
2005 $118* $241**
2007 $135** $189***
2010 $84*** $108***
2014 $135**** $150****
Source: * Booz Allen 2006, **Datamonitor 2008, ***ICA , **** Sonny’s
30
Was estimated at $241MM to OEM in 2005
Was the largest segment of industry (by far)
Steady decline through 2009 In-Bay sales to Self-Serve and investor
market slowed Recognize benefit of “Express in-bay”
and Mini-Tunnels
31
Gas not buying like before – major oil divested of retail assets
Drop in gas prices in the last year has made retail locations profitable - leading to the replacement of old machines ◦ Tremendous amount of pent up demand
32
Machines will become more attractive and inviting
Cycle times and cost will become even more important
New ways to market and add value to offerings ◦ To be successful – New emphasis on Marketing,
Presentation and Training
33
Bay length will increase to accommodate “express In-bay” (or short conveyors) ◦ stand-alone blowers, etc., to increase speed
and be able to provide additional services
Extra options will be added in longer bays ◦ Tire dressing, Lava etc
Still the choice for attendant-free operation
Equip sales expected to grow ◦ >10% 2015 ◦ Single digits for 2016 - 19
34
Was estimated at $78MM to OEM in 2005 Shrank – no growth – until recently Added In-Bays from 90’s - 2005 Now beginning to add “express In-bay or
mini tunnels Expansion of Express Exterior market
has affected this market Demographic shift to a more “Do-it-for-
Me” audience
35
Operators ◦ The good ones are becoming better informed
Looking for help to transition from investor to professional operator
◦ Willing to upgrade facilities but looking for a “magic bullet”
◦ Placing more emphasis on appearance and reliability
◦ Improved segment profitability is fueling the desire to update
36
Customers ◦ Returning to revamped locations ◦ Showing a desire for new features and more
reliable equipment ◦ Marketing still works! ◦ Shifting from ill maintained and operated
Express models
The Free Vac Effect Has it run its course?
Why are the Express customers returning to the SS??
37
Manufacturers ◦ Equipment revolution continues
◦ Increased emphasis on profitability for the operator
◦ Customer service from manufacturers needs improving – as it relates to education
38
Economy ◦ Statistics show cost is a big driver to this
market
Drop in Fuel Price - positive effect
◦ Tight credit market has forced poor preforming sites out of the market
Remaining sites have benefited
Especially those that upgraded
39
There will always be ideal self serve markets
New wash facilities are being built
Is SS the breeding ground for the entire industry? ◦ Lack of representation at the national level ◦ Challenging negativity from other wash
segments
Will the future car wash facility offer all types of washing??
40
41
Will continue to add Express In-bay or mini conveyors to compete with the Express Exterior car washes
These sites will be bought by tunnel operators as a way to expand their brand into surrounding smaller markets
This segment is expected to grow at low single digits for 2015 - 2019
42
All three segments expected to grow
We will continue to pull more washers from the driveway
Those that adjust will do well
Locations that are run professionally and offer value will do well
We will see tunnel expansion into smaller markets
Client Types
◦ Historic
◦ Current
◦ Future
Historic – 1950’s – 90’s
Family owned and operated
One location
Few had multiples beyond 5 locations
Very fragmented
Full service in the south
Full serve or traditional exterior in the snow belt
Volumes better in the snow belt
Exceptions (CA, HI)
Current – last 15 years
Investors / Existing Family owned and operated
Multi site ◦ 3 – 7 locations
Express Exterior
High volumes in all geographic areas ◦ Many more high volume sites than in the past
Current
Family owned territory mind set – Car Wash Professional – (very personal) ◦ Been doing this for 20+ years
◦ Well established brand
◦ Slowly looking at converting or building Express
Car Wash Investor – (strictly business) ◦ Looks for opportunity in any market
◦ Moves fast – especially today with low rates
◦ Willing to build Express next to existing Full Serve that can’t be converted
Current
Creates conflict between existing relationships
New role of OEM – Referee! ◦ Don’t always know where car washes are being
acquired or built
◦ Facilitate dialogue if clients are willing to talk to each other
Current
With both client types today: ◦ Caused all locations to “up their game”
More “retail” than before
Focus on “experience”
◦ Dictate to the OEM
What they want and where they want it
Will listen to suggestions, but they decide
◦ It is only the first time buyer (or first time converter) where the OEM or distributor has real input
Can help with Saturation
Location, Location, Location vs Build it and they will come
Current
Investment firms ◦ Retail side
TDR Capital – Imo - over 830 locations
Leonard Green and Partners – Mister Car Wash – over 150 locations
◦ OEM side
Trivest – Ryko / MacNeil
Prairie Capital – DRB
Vopne Capital - Vacutech
◦ Culture change in the industry
Jeans??
Future – Competition could intensify
Gas / convenience entering the tunnel wash market
◦ Who – Multi site operators
◦ Why – differentiation and margin
Where no room for free vacs – best gas wash in a market
Where have room for free vacs – become your competition
Entering the car wash business
Looking for wash sites that can have gas
Future – Competition could intensify
Car Dealerships entering the tunnel wash market ◦ Why – Have to wash cars being serviced
Turn cost into profit center
Increase CSI (Customer Service Index)
Build a retail Express wash to service their dealership
20 group conversation
Future – Competition could intensify ◦ Big Box?
◦ National Franchise?
◦ ??????????
Questions
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